"Electronic signature” is a term used to describe various methods of electronically replicating or replacing a paper signature in a document.
Affixing electronic signatures and relying on them has been a growing and evolving business practice, allowing individuals and companies to conduct business faster and more efficiently, and facilitating the conduct of business across borders.
Contract negotiations are now almost exclusively conducted via electronic means, and it is only fitting that electronic execution would also be developing at the same rate.
Although there is ordinarily nothing legally wrong with executing a contract by electronic signatures, such practice, must be conducted with care in certain situations. When considering the use of electronic signatures, two useful questions are:
- Is this a document I can execute electronically?
- If I can, is this execution method reliable in the circumstances?
When not to use electronic signatures
Statutory requirements have not evolved as fast as technology. As a result, longstanding statutory requirements apply to these new circumstances and this has created certain situations where electronic signatures may not be used. For example:
- Deeds – Electronic signatures cannot be used to legally execute deeds, as under common law, deeds are made on paper or parchment, and this requirement has remained unchanged even after the introduction of the Electronic Transactions Act1.
- Witnessed signatures for individuals – Nearly all Australian jurisdictions require the signature of an individual executing a deed to be attested in person by at least one witness who is not a party to the deed, and this requirement is unlikely to be satisfied if the signatory and the witness are not in the same place at the same time. In general, electronic signatures should be avoided for any document that requires a witness for execution.
- Section 127 and 129 of the Corporations Act2 – Section 129 entitles a person to assume that a document has been duly executed by a company, if the document has been signed in accordance with section 127. It isn’t clear if that protection will be available if a company executes a document electronically.
- Signatures affixed by third parties – These days specific software and online services, through the use of identification and authentication barriers, allow signatories to affix electronic signatures and notify the user prior to a document being signed and after such document has been signed. The New South Wales Supreme Court’s decision of Williams Group Australia Pty Ltd v Crocker(Williams v Crocker)3, although not binding on Western Australia Courts, is a substantial indication that the safeguards commonly offered by such programs or services may not be sufficient, particularly in proving an intention to be bound by the terms of a contract.
Better safe than sorry
Two common issues that arise are proving the identity of the person affixing an electronic signature to a contract and whether that person had an intention to be bound by such contract.
The nature and the importance of the document, the reliability of the party signing, the authentication mechanism and protection features of the technology used to affix the electronic signature should all therefore be considered before accepting an electronic signature.
Generally, if electronic signatures are used as a common business practice in an organisation, the organisation must put in place a reliable execution method in order to prove the intent of the signatory and, have a specific execution system for more important documents.
Included below is a non-exhaustive list of items to consider when using electronic signatures:
- avoid a standardised method which does not take into consideration the type and importance of the document, the context or the identity of the signatory;
- ensure careful management and oversight of systems and instances in which electronic signatures may be used;
- obtain the other party’s consent to the use of electronic signatures;
- obtain an acknowledgement from the signing party that it has executed the document;
- send a copy of the executed document to the signatory of that document and request an acknowledgment of receipt;
- exercise caution when choosing an electronic signature software or service provider; and
- if any electronic signature software or service provider is used:
- set up web, phone identity and knowledge based authentication systems, for example using specific questions with a response only known by the signatory; and
- use unique or complex passwords, which are regularly updated.
Electronic signatures when cross-borders parties are involved
The United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005), which only entered into force in 2013, and to which the Australian Government is currently considering accession, aims at assuring that contracts entered into and other communications conducted electronically are as valid as the traditional paper-equivalents.
This is a reminder that the law applicable to a contract involving cross-borders parties should therefore also be considered when executing a contract, as a particular jurisdiction may still require handwritten and/or witnessed signatures before binding the parties.
Where the enforceability of a contract has come into question because of an electronic signature, the Australian Courts have made findings in these specific circumstances only and will look at the specific facts in order to establish whether the parties intended to be bound.
This causes uncertainty as to what the findings may be in any particular circumstance.